Cooper Tire will consider moving production out of China after selling its stake in a joint venture that was seized by workers last year, according to executives at the US tyre manufacturer.
The dispute at Cooper’s joint venture with the Chengshan Group in eastern Shandong province forced India’s Apollo Tyres to abandon a $2.5bn offer for Ohio-based Cooper, in what would have been the biggest US acquisition by an Indian company.
Chengshan management and the joint venture’s Chinese workforce expressed concern about the debt that Apollo would take on to fund the transaction, while rejecting suggestions that they were opposed to working with an Indian company.
Cooper has agreed to sell its 65 per cent stake in the joint venture, its largest manufacturing facility, to Chengshan for $285m.
While Chengshan will continue to manufacture tyres for Cooper until at least 2018, the US company is considering alternative supply options in China and other countries. Cooper executives said that their decisions would be affected by their new appreciation for operating risks in China and countervailing duties recently assessed by the US commerce department on China-made tyres.
“Given what we’ve learned over the past year, we certainly have a little bit more caution,” said Roy Armes, Cooper chairman, on a conference call with analysts. “We want to assess our risk appropriately.”
Mr Armes emphasised that China would continue to be “an important part of our long-term growth strategy”, adding that Cooper was open to working with other suppliers and joint venture partners in the country. Cooper could also decide to increase capacity at a second factory near Shanghai that it wholly owns, or to build a new China plant.
But he also confirmed that Cooper would consider sourcing tyres from, or moving production to, other countries such as Vietnam.
“That is a consideration,” Mr Armes said when asked about the possibility of sourcing from Vietnam. “We have to think about . . . if something happens down the road [in China], are we going to be protected in one way or the other? We’re looking at all options.”
Brad Hughes, head of Cooper’s international operations, said that the recently completed sale of its controlling interest in the Shandong joint venture was fortunate given the US commerce department’s decision to apply countervailing duties on China-made tyres and overcapacity problems in the country.
“The landscape of the tyre industry globally is changing right now and we have an opportunity to reassess how we are going to go at the business and at China,” Mr Hughes said. “We have an opportunity we wouldn’t have had if we were still involved in the [Chengshan] JV.
“Prices for tyres in the domestic China market will fall due to abundant supply,” he added. “These circumstances have damped demand for [Chengshan’s] domestic tyres.”
Chengshan borrowed money from state-owned Bank of China to fund its purchase of Cooper’s joint venture stake and routed the transaction through a Hong Kong shell company, ensuring that the factory can continue to qualify for tax breaks as a foreign-invested enterprise.
